On March 26, 2026, President Trump signed a new executive order titled “Addressing DEI Discrimination by Federal Contractors.” Where Executive Orders 14151 and 14173 (issued in January 2025) set the policy direction—eliminating internal government DEI programs and rescinding the longstanding EO 11246—this new order translates that policy into enforceable contract terms with direct legal and financial consequences for federal contractors and subcontractors.
What the Order Does
The order directs all executive departments and agencies to include a mandatory contract clause in federal contracts (including subcontracts) prohibiting “racially discriminatory DEI activities.” The clause must be incorporated into covered contracts within 30 days of the order—by April 25, 2026.
Notably, the order defines “racially discriminatory DEI activities” as disparate treatment based on race or ethnicity in the following areas:
- Recruiting, hiring, promotion, and employment decisions
- Vendor and subcontractor selection
- Training, mentoring, leadership development, and educational opportunities
- Clubs, associations, and employee resource groups
- Resource allocation and program participation
This requirement is more specific than in previous executive orders. Federal contractors may want to assess whether any current programs or practices could fall within this scope.
Enforcement and Consequences
The enforcement framework is significant. Under the new EO, noncompliance may result in:
- Contract cancellation, termination, or suspension
- Debarment from future federal contracts
- False Claims Act (FCA) liability—the order requires contractors to acknowledge that compliance is material to the government’s payment decisions, opening the door to FCA enforcement by an Office of Inspector General agency for reported suspicions of misrepresentations in addition to abuse or fraud and qui tam whistleblower actions
Additionally, the order extends accountability to subcontractors that must also certify and comply. Contractors are required to report any known or reasonably knowable violations by their subcontractors and may face consequences for a subcontractor’s noncompliance.
Broader Implications for Federal Grantees
While the March 2026 order applies specifically to federal contracts subject to the Federal Property and Administrative Services Act, organizations that receive federal financial assistance—including grants, loans, and cooperative agreements—should not assume they are unaffected. As we discussed in Part 2 of this series exploring the impact of Executive Orders on recipients of federal funds, EO 14173 already requires federal contractors and grantees to certify that they do not operate programs promoting DEI that violate applicable federal anti-discrimination laws. Although the new order reinforces and operationalizes that framework for contractors, similar requirements could be on the horizon for grantees.
Connection to Prior Executive Orders
As previously discussed in Part 1 and Part 2 of this series, the administration’s initial executive orders (EO 14151 and EO 14173, both signed in January 2025) set the policy foundation by ending internal government DEI programs and rescinding the decades-old EO 11246, which had required affirmative action by federal contractors.
This new order operationalizes that policy by introducing a specific, enforceable mechanism—embedded directly in contract terms—and establishes clear implementation deadlines, as follows:
- April 25, 2026: Mandatory contract clause must be incorporated into all covered federal contracts
- May 25, 2026: FAR Council interim guidance deadline
- July 24, 2026: Agency heads must report on implementation to the Assistant to the President for Domestic Policy
Implications for SAM
In addition to the new EO, the General Services Administration (GSA) has proposed revisions to the certifications that federal financial assistance recipients must make in the System for Award Management (SAM). If finalized, these changes would require all entities registered with SAM to certify that they do not operate programs promoting “illegal DEI” or discriminate on the basis of race or color in violation of federal anti-discrimination laws.
The proposed certifications also cover immigration compliance and national security. False certifications could carry exposure under the False Claims Act and potential criminal liability under 18 U.S.C. § 1001 for the authorized official who signs. The public comment period for the proposed SAM certification changes closed on March 30, 2026, and federal contractors may want to keep apprised of how this is finalized.
Next Steps for Federal Contractors
Organizations that have been monitoring these developments and taking steps to prepare over the past year—such as those outlined in Part 3 of our series—may be better positioned to respond to this new order.
For those who have not yet taken those steps, particularly companies, nonprofits, and universities that hold or seek federal contracts, the following actions are aligned with the approaches we shared in Part 3:
- Review existing DEI-related programs and practices (including mentoring, leadership development, programs and training) through the lens of the order’s definition of “racially discriminatory DEI activities.”
- Review public-facing information including websites, career pages, social media, and DEI statements, as well as internal policies and procedures, to identify any language or commitments that could suggest race-based preferences or restricted access to programs. Public statements or internal messaging that reference race-based criteria may heighten the risk of audits, enforcement actions, or potential False Claims Act litigation.
- Evaluate hiring and employment practices through the lens of non-discrimination and this executive order, including recruiting, hiring, and promotion processes, to determine whether they involve disparate treatment based on race or ethnicity. Some state requirements on non-discrimination may not be aligned with this order, so you may want to engage with counsel to ensure compliance with both federal and state obligations.
- Assess subcontractor relationships and consider how reporting obligations and compliance monitoring will be managed.
- Evaluate FCA exposure given the order’s express provision that compliance is material to the government’s payment decisions.
- Monitor pending OMB guidance and FAR amendments for sector-specific implementation details.
- Engage with peer organizations to understand how the clause is being interpreted and applied across your sector.
The scope and enforcement mechanisms of this order are still being defined, and legal challenges are possible. We will continue to monitor developments and update this series as the landscape evolves.
Series Note
This is the latest post in our continuing series on executive orders affecting exempt organizations, universities, and recipients of federal funds. In earlier installments, we covered the initial wave of executive orders, their impact on recipients of federal funds, and practical tips for preparing for unexpected executive actions. We also recently discussed the Department of Education’s new PSLF employer eligibility rule, which reflects a broader trend of increased federal scrutiny of organizational compliance practices.
Lakshmi Sarma Ramani is a Partner and Practice Area Leader at OGC. Lakshmi has over 25 years of significant transactional experience and handles a range of legal matters for privately held companies and exempt organizations.